“We focus on what the government can do to improve productivity and we suggest it’s a good time for the government to invest in transportation capital, in public transportation, roads, mainly trains, buses, bus routes etc.,” Zvi Eckstein, head of the Aaron Institute for Economic Policy that published the study on productivity, told CNBC.
The government committee follows on a 2016 decision to improve public transport in the country’s metropolitan areas. Eckstein, a former deputy-governor of the Bank of Israel, said that transportation, including roads and railways, generally accounts for 70 percent of infrastructure investments in developed economies.
In order to close the infrastructure gap with the U.S. and Europe, Israel would have to double its current, low level of infrastructure spending from 1.8 percent to close to 4 percent over the next 15 years, said Eckstein. That was not such an outlandish thought, he noted, given for example the U.S. level of spending that stands at some 3 percent. The infrastructure shortfall translates into some NIS470-600 billion ($132-169 billion), it emerged from the study.
The link to productivity is obvious, said Eckstein: “For the U.S., there have been many studies by academic economists that show that the impact of the huge interstate investments in the 50s and the 60s was one of the major sources for the huge growth of GDP per capita and really made the U.S. into what it is today.”
The study recommends public-private partnerships, PPPs, or build-operate-transfer, BOTs, to achieve the needed infrastructure investments but also says that given the current low interest rates, public investment alone is not out of the question either.
